Saturday, November 14, 2009

FLG's A Tad Bit Concerned

FLG just watched a Bloomberg interview with Alan Krueger. In it he was asked whether he's concerned about cyclical or structural unemployment. He responded that the president wants to tackle both.

A quick refresher on types of unemployment:
  • Seasonal - This is ski lift operators getting laid off in the summer or lifeguards in the winter. Not so big a deal.
  • Frictional - People switching jobs and normal search time for a new job. People and firms don't have perfect information so they have to look at job postings, resumes, and interview and those take time.
  • Cyclical - As the name implies, jobs lost due to a downturn in the business cycle.
  • Structural - When creative destruction permanently destroys jobs.

The government being concerned about cyclical employment and enacting stimulus programs to build infrastructure and other things makes sense. I'm more concerned about them tackling structural unemployment. If by this they mean job retraining and things, then I'd be okay. But Krueger was talking about how the president wants to build a firm foundation for growth, which is problematic.

It's problematic because if people knew what came next in our economy, then we'd be out of the recession already. When politicians talk about these things currently, it's usually something about "green jobs" and "green technology." That's all well and good, but that's political not economic.

The thing here is that the market invests in technology it thinks will grow the economy automatically. Investors see growth opportunities and take a stake in the companies. When the government gets involved it therefore does one of two things -- either pushes out private funds or invests in technology with little prospect for growth. Neither of these is very appealing, which is to say that I seriously question the very idea that the government can build a "sustainable basis for future growth." It's a deeply flawed idea that is only held by alternately hubristic or ignorant people.

To be completely fair, there are some isolated economic things that the government can do to spur future growth, but it should be part of fighting cyclical unemployment, like building infrastructure.

1 comment:

Anonymous said...

Last week -at one agency alone- 485 Ad people lost their jobs in the Detroit ad market.

Why? Easy.

Chrylser- which is owned by the government -decided to give the account to an agency in Dallas. The Dallas agency won't come up with anything the Detroit agency could not have. More than that, Chrysler's lackluster sales has very little to do with its advertising - but to say that goes against the long held and erroneous wisdom of John Kenneth Galbraith.

I used to do Jeep ads. Ads do not sell cars. Price and value does.

So 485 people are out of high level jobs in a town with unemployment is closer to 20% than 15%. None of those jobs will be returning.
Mrs. P

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